Posted: 04/1999
A Road Map for Internet Billing
Part Three of Three
By Richard K. Crone
Billers, Watch That First Step
As we discussed, each individual bill payer ultimately will decide which IBPP channel is most convenient. Thus, a biller eventually will have to support them all. The channel that a biller selects to get going with IBPP will make all the difference down the road--not just from a return-on-investment (ROI) perspective--but from the marketing, customer care and cash management perspectives as well.
The most important thing for a biller to remember is that it must control enrollment to maximize the IBPP customer care, revenue and cost-reduction opportunities, regardless of where the bill is presented. When a biller enrolls a consumer, rather than a home-banking service or third-party concentrator, the biller has the opportunity to gather valuable information about customer preferences and demographics--invaluable information for crafting effective customer care, marketing, online sales and customer loyalty-building programs. It also provides the biller with the opportunity to register a customer for payment options without reliance on third parties. In addition, a biller also should control the settlement process by placing the electronic payment lockbox on the electronically presented bill. This way, regardless of which channel a consumer selects to render payment, the lockbox on the bill will bring the payment back to the biller and thus further reduce inbound float while garnering another source of marketing--packed trackable clicks.
Establishing an initial IBPP presence at its own website enables a biller both to directly enroll its customers and control the payment process, no matter where customers eventually may elect to view and pay their bills electronically.
Once a biller's direct website IBPP capability is launched, billers then can follow the lead of Hollywood movie producers who know how to derive maximum value from their content. Before a movie first plays, theatergoers are lured to the snack bar to enable theater owners to make their profits--rather like electronically presented bills lure consumers to a biller's website where they can be engaged in one-to-one marketing dialogues. After the producer has raked in the theater revenues, a hit movie generally is rolled out to pay-for-view cable or satellite, followed by "premium" movie channels, followed by airlines and, then, videocassettes. Finally, the widest possible audience gets to see it on broadcast television. Reverse this process, or any part of it, and the producer starts leaving a great amount of money on the table.
A biller looking to maximize ROI, brand awareness, cross-selling opportunities and advertising revenues can follow the same type of progression, starting with its own website. The next step could be biller-controlled e-mail, followed by browser subscription and, then, by shared links. Once these biller-direct channels are deployed, a biller can address the home-banking channels where ROI and marketing opportunities are considerably diluted, but where some customer segments will insist on going.
No matter how many channels a biller opens up for its customers' convenience, they still can be brought to the biller's own website for enrollment and payment registration. And by leading first with biller-direct, the biller is assured of having registered the early IBPP adopters, who may prove to be among a biller's more affluent and perhaps profitable customers.
Bankers Align Strategies
In IBPP, the bank is a biller's support staff and its partner. Billers are in the best position to promote, enroll, authenticate and register their customers for IBPP services. But to help "their" billers gain maximum advantage from IBPP, banks also should work behind the scenes in supporting billers in the same way they do with direct debit programs by letting the biller embed payment on its bill regardless of the electronic viewing and payment channel. This not only enables payments to flow immediately back to the biller, but also helps banks protect their overall payment franchise from nonbanks.
Graph: Biller-Controlled Channels Have the Greatest Return on Investment in
Shortest Time Period
Banks need to remember their own experiences in deploying earlier electronic distribution channels. With automatic teller machines (ATMs), supply created demand and the bank registered the customer. Then came home banking, which only truly took off when the Internet allowed customers to go straight to the bank's site and avoid third parties when viewing the bank's content. Finally, there is direct debit, in which payment follows the bill. Banks need to marshal this experience on behalf of their billers today to craft strategies that enable:
- Content holders to register consumers;
- Billers to control content and posting; and
- Payment to follow the bill.
To do this, banks need to reconcile their retail and wholesale objectives in regard to home banking and IBPP. As we've discussed, retail banks are only resellers of home banking. A nonbank is typically behind the scenes performing the enrollment and processing functions. Thus, retail home banking is cost-driven. Wholesale banks, on the other hand, are suppliers of cash management services and thus are revenue-driven. From the biller's perspective, when they are dealing with the wholesale side of the bank, they are dealing with the original equipment manufacturer (OEM), not a middleman or reseller of home-banking services. By dealing with the OEM, a biller has greater control over the quality of service (QoS) and functionality as well as bargaining position. A wholesale bank can make money by serving one big account well, while a retail bank has to serve a multitude of customers to turn a profit from a delivery channel such as home banking.
The problem is, there hasn't been a multitude of home-banking users. There are perhaps 5 million households at best. And of those that take advantage of home banking on the Internet, almost all of them use it merely to check their account balances, or perhaps to move money around--not to pay bills. IBPP can bring many more consumers into the home-banking fold, but should home banking be the channel through which banks attempt to drive IBPP and thus serve their major billers? Probably not.
Wholesale banking needs to drive IBPP, not retail banking. It is the biller-controlled channels that best leverage wholesale banking's strengths. This is because biller-direct channels, such as direct-at-the-biller's-own-website or e-mail, leverage the highly profitable cash management services that wholesale banks provide to major billers today. For example, direct debits (the lowest-cost forms of remittance) typically are processed in-house, not by third parties. The biller interfaces with the consumer, and the bank interfaces with the biller--a simple two-party model with no third-party intermediation. Transfer this to the biller's own website--with the consumers paying bills at their own pace via electronic check--and you have an equally simple two-party model with an equally low-cost form of remittance.
Banks need to encourage billers to lead with biller-direct channels where they can enroll their own consumers and control their own content and posting. This will protect banking's payment franchise while maximizing billers' returns. Then, to capture shares in what will be a rapidly expanding IBPP market, banks can extend payment services to all channels. The retail side can target traditional home-banking customers by supporting home banking-controlled models such as thin and thick concentration. The wholesale side of the bank, meanwhile, can focus on using supporting biller-direct models to woo the huge number of consumers presently utilizing direct-debit bill-paying services, along with targeting those consumers using financial management software packages but not currently going online.
Embedding Payment on the Bill
For banks to follow this two-pronged banking strategy, and for billers to address all IBPP channels profitably, banks must support their billers in electronically embedding payment capabilities on their electronically presented bills. This way, no matter where a bill is presented and paid, the payment will come back to the biller for processing at its bank. By embedding payment on a bill before it is rendered at third-party sites, such as thick concentrators, the biller can avoid many of the cost disadvantages associated with home banking-controlled channels. Billers also benefit by their ability to leverage their combined electronic funds transfer (EFT) requests with their wholesale bank while optimizing settlement schedules to obtain the best possible availability of funds--a major cash management and customer care value-add.
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Richard K. Crone is vice president and general manager for CyberCash Inc., Oakland, Calif. He can be reached at rcrone@cybercash.com. |
